G.R. No. 127004. March 11, 1999.
* termination of the project, initially agreed to be finished on July 17, 1983, were granted by
NATIONAL STEEL CORPORATION, petitioner, vs. THE REGIONAL TRIAL COURT OF
LANAO DEL NORTE, BRANCH 2, ILIGAN CITY and E. WILLKOM ENTERPRISES,
INC., respondents.
The facts are stated in the opinion of the Court.
Padilla & Padilla for petitioner.
Alfredo R. Busico for private respondents.
PURISIMA, J.:
Before the Court is a Petition for Certiorari with Prayer for Preliminary Injunction &
Temporary Restraining Order under Rule 65 of the Revised Rules of Court assailing the
decision of the Regional Trial Court of Lanao del Norte, Branch 2, Iligan City, on the
following consolidated cases:
(a) Special Proceeding Case No. 2206 entitled National Steel Corporation vs. E. Willkom
Enterprise, Inc. to Vacate Arbitrators Award; and
(b) Civil Case No. 2198 entitled to E. Willkom Enterprises, Inc. vs. National Steel
Corporation for Sum of Money with application for Confirmation of Arbitrators Award.
The facts as found below are, as follows:
“x x x On Nov. 18, 1992, petitioner-defendant Edward Wilkom Enterprises, Inc. (EWEI for
brevity) together with one Ramiro Construction and respondent-petitioner National Steel
Corporation (NSC for short) executed a contract whereby the former jointly undertook the
Contract for Site Development (Exhs. “3” & “D”) for the latter’s Integrated Iron and Steel
Mills Complex to be established at Iligan City.
Sometime in the year 1983, the services of Ramiro Construction was terminated and on
March 7, 1983, petitioner-defendant EWEI took over Ramiro’s contractual obligation. Due
to this and to other causes deemed sufficient by EWEI, extensions of time for the
NSC. Differences later arose, Plaintiff-defendant EWEI filed Civil Case No. 1615 before the
Regional Trial Court of Lanao del Norte, Branch 06, (Exhs. “A” and “1”) praying essentially
for the payments of P458,381.001 with interest from the time of delay; the price adjustment
as provided by PD 1594; and exemplary damages in the amount of P50,000.00 and
attorney’s fees.
Defendant-petitioner NSC filed an answer with counterclaim to plaintiff’s complaints on
May 18, 1990.
On August 21, 1990, the Honorable Court through Presiding Judge Valario M. Salazar
upon joint motion of both parties had issued an order (Exhs. “C” and “3”) dismissing the
said complaint and counterclaim x x x in view of the desire of both parties to implement
Sec. 19 of the contract, providing for a resolution of any conflict by arbitration x x x. (italics
supplied).
In accordance with the aforesaid order, and pursuant to Sec. 19 of the Contract for Site
Development (id.) the herein parties constituted an Arbitration Board composed of the
following:
(a) Engr. Pafnucio M. Mejia as Chairman, who was nominated by the two arbitrators earlier
nominated by EWEI and NSC with an Oath of Office (Exh. “E”);
(b) Engr. Eutaquio O. Lagapa, Jr., member, who was nominated by EWEI with an oath
office (Exh. “F”);
(c) Engr. Gil A. Aberilla, a member who was nominated by NSC, with an Oath of Office
(Exh. “G”).
After series of hearings, the Arbitrators rendered the decision (Exhs. “H” & “4”) which is the
subject matter of these present causes of action, both initiated separately by the herein
contending parties, substantial portion of which directs NSC to pay EWEI, as follows:
(a) P458,381.00 representing EWEI’s last billing No. 16 with interest thereon at the rate of
1-1/4% per month from January 1, 1985 to actual date of payment;
(b) P1,335,514.20 representing price escalation adjustment under PD No. 1594, with
interest thereon at the rate of 1-1/4% per month from January 1, 1985 to actual date of
payment;
(c) P50,000 as and for exemplary damages; (Republic Act No. 876). The Board shall apply Philippine Law in adjudicating the dispute.
The decision of a majority of the members of the Arbitration Board shall be valid, binding,
(d) P350,000 as and for attorney’s fees; and final and conclusive upon the parties, and from which there will be no appeal, subject to
the provisions on vacating, modifying, or correcting an award under the said Republic Act
(e) P35,000.00 as and for cost of arbitration.”1 National Steel Corporation vs. Regional
No. 876.3
Trial Court of Lanao del Norte, Br. 2, Iligan City, 304 SCRA 595, G.R. No. 127004 March
11, 1999

The Regional Trial Court of Lanao del Norte, Branch 2, Iligan City through Judge Maximo
B. Ratunil, rendered judgment as follows:
Thereunder, if a dispute should arise from the contract, the Arbitration Board shall assume
jurisdiction and conduct hearings. After the Board comes up with a decision, the parties
may immediately implement the same by treating it as an amicable settlement. However, if
(1) In Civil Case No. II-2198, declaring the award of the Board of Arbitrators, dated April
one of the parties refuses to comply or is dissatisfied with the decision, he may file a
21, 1992 to be duly AFFIRMED and CONFIRMED “en toto”; that an entry of judgment be
Petition to Vacate the Arbitrator’s decision before the trial court. On the other hand, the
entered therewith pursuant to Republic Act No. 876 (the Arbitration Law); and costs
winning party may ask the trial court’s confirmation to have such decision enforced.
against respondent National Steel Corporation.

(2) In Special Proceeding No. II-2206, ordering the petition to vacate the aforesaid award
be DISMISSED.

SO ORDERED.”2
With the denial on October 18, 1996 of its Motion for Reconsideration, the National Steel
Corporation (NSC) has come to this court via the present petition.
After deliberating on the petition as well as the comment and reply thereon, the court gave
due course to the petition and considered the case ripe for decision.
It should be stressed that voluntary arbitrators, by the nature of their functions, act in a
quasi-judicial capacity.4 As a rule, findings of facts by quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to specific matters, are accorded
not only respect but even finality if they are supported by substantial evidence,5 even if not
overwhelming or preponderant.6 As the petitioner has availed of Rule 65, the Court will not
review the facts found nor even of the law as interpreted or applied by the arbitrator unless
the supposed errors of facts or of law are so patent and gross and prejudicial as to amount
to a grave abuse of discretion or an excess de pouvoir on the part of the arbitrators.7

The pivot of inquiry here is whether or not the lower court acted with grave abuse of Thus, in a Petition to Vacate Arbitrator’s Decision before the trial court, regularity in the
discretion in not vacating the arbitrator’s award. performance of official functions is presumed and the complaining party has the burden of
proving the existence of any of the grounds for vacating the award, as provided for by
Section 24 of the Arbitration Law, to wit:
A stipulation to refer all future disputes or to submit an ongoing dispute to an arbitrator is
valid. Republic Act 876, otherwise known as the Arbitration Law, was enacted by Congress
since there was a growing need for a law regulating arbitration in general. “Sec. 24. GROUNDS FOR VACATING THE AWARD.—In any one of the following cases,
the court must make an order vacating the award upon the petition of any party to the
controversy when such party proves affirmatively that in the arbitration proceedings:
The parties in the present case, upon entering into a Contract for Site Development,
mutually agreed that any dispute arising from the said contract shall be submitted for
arbitration. Explicit is Paragraph 19 of subject contract, which reads: “Paragraph 19. (a) The award was procured by corruption, fraud or other undue means;
ARBITRATION. All disputes, questions or differences which may at any time arise
between the parties hereto in connection with or relating to this Agreement or the subject (b) That there was evident partiality or corruption in the arbitrators of any of them; or
mat- ter hereof, including questions of interpretation or construction, shall be referred to an
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
Arbitration Board composed of three (3) arbitrators, one to be appointed by each party,
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
and the third, to be appointed by the two (2) arbitrators. The appointment of arbitrators and
controversy; that one or more of the arbitrators was disqualified to act as such under
procedure for arbitration shall be governed by the provisions of the Arbitration Law
section nine hereof, and wilfully refrained from disclosing such disqualification or of any
other misbehavior by which the rights of any party have been materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made.
x x x”
The grounds relied upon by the petitioner were the following: (a) That there was evident
partiality in the assailed decision of the Arbitrators in favor of the respondent; and (b) That
there was mistaken appreciation of the facts and application of the law by the Arbitrators.
These were the very same grounds alleged by NSC before the trial court in their Petition to
Vacate the Arbitration Award and which petitioner is reiterating in this petition under
scrutiny.
Parenthetically, and in the light of the record above-mentioned, this Court hereby holds
that the Board of Arbitrators did not commit any ‘evident partiality’ imputed by petitioner
NSC. Above all, this Court must sustain the said decision for it is a well-settled rule that the
actual findings of an administrative body should be affirmed if there is substantial evidence
to support them and the conclusions stated in the decision are not clearly against the law
and jurisprudence similar to the instant case. Henceforth, every reasonable intendment will
be indulged to give effect such proceed- ings and in favor of the regulatory and integrity of
the arbitrators act. (Corpus Juris, Vol. 5, p. 20)”8
Indeed, the allegation of evident partiality is not well-taken because the petitioner failed to
substantiate the same.

Petitioner’s allegation that there was evident partiality is untenable. It is anemic of

evidentiary support.
In the case of Adamson vs. Court of Appeals, 232 SCRA 602, in upholding the decision of
the Board of Arbitrators, this Court ruled that the fact that a party was disadvantaged by
the decision of the Arbitration Committee does not prove evident partiality. Proofs other
than mere inference are needed to establish evident partiality. Here, petitioner merely
averred evident partiality without any proof to back it up. Petitioner was never deprived of
the right to present evidence nor was there any showing that the Board showed signs of
any bias in favor of EWEI. As correctly found by the trial court:
Anent the issue of mistaken appreciation of facts and law of the case, the petitioner
theorizes that the awards made by the Board were unsubstantiated and the same were a
plain misapplication of the law and even contrary to jurisprudence. To have a clearer
understanding of the petition, this Court will try to discuss individually the awards made by
the Board, and determine if there was grave abuse of discretion on the part of the trial
court when it adopted such awards in toto.
I. P458,381.00 representing EWEI’s last

billing No. 16 with interest thereon at the

“Thirdly, this Court cannot find its way to support NSC’s contention that there was evident
partiality in the assailed Award of the Arbitrator in favor of the respondent because the
conclusion of the Board, which the Court found to be well-founded, is fully supported by
substantial evidence, as follows:
“x x x The testimonies of witnesses from both parties were heard to clarify facts and to
threash (sic) out the dispute in the hearings. Upon motion by NSC counsel, the hearing of
testimony from witnesses was terminated on 22 January 1992. To end the testimonies in
the hearing both litigant parties upon query by Arbitrator-Chairman freely declared that
there has been no partiality in the manner the Arbitrators conducted the hearing, that there
has been no instance, where Arbitrators refused to postpone requested or to hear/accept
evidence pertinent and material to the dispute. x x x (italics supplied)
rate of 1-1/4% per month from January 1,
1985 to actual date of payment.
Petitioner seeks to bar payment of the said amount to EWEI. Since the latter failed to
complete the works as agreed upon, NSC had the right to withhold such amount. The
same will be used to cover the cost differential paid to another contractor who finished the
work allegedly left uncompleted by EWEI. Said work cost NSC P1,225,000, and should be
made chargeable to EWEI’s receivables on Final Billing No. 16 issued to NSC.
The query here therefore is whether there was failure on the part of EWEI to complete the
work agreed upon. This will determine whether Final Billing No. 16 can be made
chargeable to the cost differential paid by NSC to another contractor.
After a series of hearings, the Board of Arbitrators concluded that the work was completed
by EWEI. As correctly stated:
“To authenticate the extent of unfinished work, quantity, unit cost differential and amount,
NSC was required to submit copies of payment vouchers and/or job awards extended to
the other contractor engaged to complete the works. The best efforts by NSC despite the
multiplicity of accounting/auditing/engineering records required in a corporate complex
failed to produce documentary proofs from their Iligan or Makati office despite repeated
requests. NSC failed to substantiate such allusion of completion by another contractor
three unfinished items of works, actual quantities accomplished and unit cost differential
paid chargeable against EWEI.
xxx xxx xxx
The latest evaluation on record of the items of work completed by EWEI under the contract
is drawn from the NSC report (Exhibit “II-d”) dated 12 November 1985 submitted with the
EWEI Billing No. 16-Final in the course of processing claim on items of work
accomplished. There is no such report or mention of unfinished work of 90,000 MT of
dumped riprap, 100,000 cu m of site grading and 300,000 cu m of spreading common
excavated materials in the EWEI contract alluded to by the NSC as unfinished work
otherwise EWEI Billing No. 16-Final would not have passed processing for payment unless
there is really no such unfinished work NSC evaluation report with no adverse findings of
unfinished work consider the contract as completed.
To affirm the work items, quantity, unit cost differential and amount of unfinished work left
behind by EWEI, NSC in serving notice of contract termination to EWEI should have
instead specifically cited these obligations in detail for EWEI to perform/comply within 30
days, such failure to perform/comply should have constituted as an event in default that
would have justified termination of contract of NSC with EWEI. If at all, this unfinished work
may be additional/extra work awarded in 1984 to another contractor at prices higher than
the unit price tendered by EWEI in 1982 and/or the discrepancy between actual quantities
of work accomplished per plans versus estimated quantities of work covered by separate
contract as expansion of the original project.”
xxx xxx xxx
IN VIEW OF THE FOREGOING, THE SO-CALLED UNFINISHED WORKS IN THE
CONTRACT BY EWEI ALLUDED TO BY NSC IS NOT CONSIDERED AN OBLIGATION
TO PER-FORM/COMPLY THUS ABSOLVING EWEI OF ANY FAILURE TO
PERFORM/COMPLY AND THEREFORE CANNOT BE AVAILED OF AS A RIGHT OR
REMEDY BY NSC TO RECOVER UNIT DIFFERENTIAL COST FROM EWEI FOR THE
SAME UNSUBSTAN- TIATED WORK DONE BY ANOTHER CONTRACTOR.” (ANNEX
“C” ARBITRATION, pages 86-88 of Rollo.)
Furthermore, under the contract sued upon, it is clear that should the Owner feel that the
work agreed upon was not completed by the contractor, it is incumbent upon the OWNER
to send to CONTRACTOR a letter within seven (7) days after completion of the inspection
to specify the objections thereto.9 NSC failed to comply with such requirement, and
therefore it would be unfair to refuse payment to EWEI, considering that the latter had
faithfully submitted Final Billing No. 16 believing that its work had been completed because
NSC did not call its attention to any objectionable aspect of their project.
But, what cannot be upheld is the Board’s imposition of a 1-1/4% interest per month from
January 1, 1985 to actual date of payment. There is nothing in the said contract to justify or
authorize such an award. The trial court should have therefore disregarded the same and
instead, applied the legal rate of 6% per annum, from Jan. 1, 1985 until this decision
becomes final and executory. This is so because the legal rate of interest on monetary
obligations not arising from loans or forebearance of credits or goods is 6%10 per annum
in the absence of any stipulation to the contrary.
II. Price escalation with the interest rate
of 1-1/4% per month from 1 January 1985
to actual date of payment.
Petitioner contends that EWEI is not entitled to price escalation absent any stipulation to
that effect in the contract under which, the contract price is fixed, citing Paragraph 2
thereof, which stipulates:

2. CONTRACT PRICE—
xxx xxx
The applicable unit prices above fixed are based on the assumption that the disposal
areas for cleared, grubbed materials, debris, excess filling materials and other matters that
are to be disposed of or are within the boundary limits of the site, as designated in Annex
A hereof. In the event that disposal areas fixed and designated in Annex A are diverted
and transferred to such other areas as would be outside the limits of the site as would
require additional costs to the contractor, then Owner shall be liable for such additional
hauling costs of P1.45/km/m3.” (Annex “A,” Contract for Site Development, page 55 of
Rollo)
The phrase “prices above fixed” means that the contract price of the work shall be that
agreed upon by the parties at the time of the execution of the contract, which is the law
between them provided it is not contrary to law, morals, good customs, public order, or
public policy. (Article 1306, New Civil Code). It cannot be inferred therefrom, however, that
the parties are prohibited from imposing future increases or price escalation. It is a cardinal
rule in the interpretation of contracts that “if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control.” But price escalation is expressly allowed under Presidential Decree 1594,
which law allows price escalation in all contracts involving government projects including
contracts entered into by government entities and instrumentalities and Government
Owned or Controlled Corporations (GOCCs). It is a basic rule in contracts that the law is
deemed written into the contract between the parties. And when there is no prohibitory
clause on price escalation, the Court will allow payment therefor. Thus, petitioner cannot
rely on the case of Llama Development Corporation vs. Court of Appeals and National
Steel Corporation, GR 88093, Resolution, Third Division, 20 Sept. 1989. It is not applicable
here since in that case, the contract explicitly provided that the contract price stipulated
was fixed, inclusive of all costs and not subject to escalation, (emphasis supplied). This, in
effect, waived the provisions of PD 1594. The case under scrutiny is different as the
disputed contract does not contain a similar provision.
In a vain attempt to evade said law’s application, they would like the Court to believe that it
is an acquired asset corporation and not a government owned or controlled corporation so
that they are not within the coverage of PD 1594. Whether NSC is an asset-acquired
corporation or a government owned or controlled corporation is of no moment. It is not
determinative of the pivot of inquiry. It bears emphasizing that during the hearings
conducted by the Board of Arbitrators, there was presented documentary evidence to
show that NSC, despite its being allegedly an asset acquired corporation, allowed price
escalation to another contractor, Geo Transport and Construction, Inc. (GTCI). As said in
the decision of the Board of Arbitrators:
“On the other hand, there was documentary evidence presented that NSC granted Geo
Transport and Construction, Inc. (GTCI), the other favored contractor working side by side
with EWEI on the site development project during the same period the GTCE was granted
upon request and paid by NSC an actual sum of P6.9 million as price adjustment
compensation even without the benefit of escalation provision in the contract but allowed in
accordance with PD No. 1594 enforceable among government controlled or owned
corporation. The statement is embodied in an affidavit But price escalation is expressly
allowed under Presidential Decree 1594, which law allows price escalation in all contracts
involving government projects including contracts entered into by government entities and
instrumentalities and Government Owned or Controlled Corporations (GOCCs). It is a
basic rule in contracts that the law is deemed written into the contract between the parties.
And when there is no prohibitory clause on price escalation, the Court will allow payment
therefor. Thus, petitioner cannot rely on the case of Llama Development Corporation vs.
Court of Appeals and National Steel Corporation, GR 88093, Resolution, Third Division, 20
Sept. 1989. It is not applicable here since in that case, the contract explicitly provided that
the contract price stipulated was fixed, inclusive of all costs and not subject to escalation,
(emphasis supplied). This, in effect, waived the provisions of PD 1594. The case under
scrutiny is different as the disputed contract does not contain a similar provision.
In a vain attempt to evade said law’s application, they would like the Court to believe that it
is an acquired asset corporation and not a government owned or controlled corporation so
that they are not within the coverage of PD 1594. Whether NSC is an asset-acquired
corporation or a government owned or controlled corporation is of no moment. It is not
determinative of the pivot of inquiry. It bears emphasizing that during the hearings
conducted by the Board of Arbitrators, there was presented documentary evidence to
show that NSC, despite its being allegedly an asset acquired corporation, allowed price
escalation to another contractor, Geo Transport and Construction, Inc. (GTCI). As said in
the decision of the Board of Arbitrators:
“On the other hand, there was documentary evidence presented that NSC granted Geo
Transport and Construction, Inc. (GTCI), the other favored contractor working side by side
with EWEI on the site development project during the same period the GTCE was granted
upon request and paid by NSC an actual sum of P6.9 million as price adjustment
compensation even without the benefit of escalation provision in the contract but allowed in
accordance with PD No. 1594 enforceable among government controlled or owned
corporation. The statement is embodied in an affidavit EWEI cannot claim that NSC acted
in bad faith or in a wanton manner when it refused payment of the Final Billing No. 16. The
belief that the work was never completed by EWEI and that it (NSC) had the right to make
it chargeable to the cost differential paid by the latter to another contractor was neither
wanton nor done in evident bad faith. The payment of legal rate of interest will suffice to
compensate EWEI of whatever prejudice it suffered by reason of the delay caused by
NSC.

As regards the award of attorney’s fees, award for attorney’s fees without justification is a
“conclusion without a premise, its basis being improperly left to speculation and
conjecture.”14 The “fixed counsel’s fee” of P350,000 should be disallowed. The trial court
acted with grave abuse of discretion when it adopted the same in toto.

WHEREFORE, the awards made by the Board of Arbitrators which the trial court adopted
in its decision of July 31, 1996, are modified, thus:

(1) The award of P474,780.23 for Billing No. 16-Final and P1,335,514.20 for price
adjustment shall be paid with legal interest of six (6%) percent per annum, from January 1,
1985 until this decision shall have become final and executory;

(2) The award of P50,000 for exemplary damages and attorney’s fees of P350,000 are
deleted; and

(3) The cost of arbitration of P35,000 to supplement arbitration agreement has to be paid.

No pronouncement as to costs.

SO ORDERED.